Tax planning is a vital part of any wealth management strategy, but reducing your tax burden isn’t always a straightforward process, especially for individuals with more complicated returns. Careful planning can help minimize your tax liability leaving you with more money to further your financial goals. 

Tax planning isn’t just something you think about when filing, it requires year-round attention if done properly. Surely, your accountant should play a large role in this, but consider working with a financial advisor who can recommend tax-efficient investment strategies as well.

What is tax planning? 

Tax planning involves examining your finances holistically and incorporating strategies to reduce your overall tax bill through careful planning around income, purchases, investments, and strategies like tax-loss harvesting. 

Strategic tax planning can also help maximize your estate and provide more flexibility for your heirs. For example, when you die, property that you own is treated as if it’s sold and capital gains are taxed. Transferring property to a surviving spouse upon your death can help defer the “disposition tax.”   

How a financial advisor can help

As part of an overall plan to manage your wealth, many financial advisors will offer tax planning services. These services may include:

• Developing a charitable giving strategy. The amount and timing of charitable giving can have an impact on your tax bill. A financial advisor can help you determine when and how much to give so you can deduct your charitable contributions from your adjusted gross income. An advisor may help you time these deductions around other big taxable events, like a financial windfall, a salary raise or a large bonus at work. 

• Scheduling tax-loss harvesting security sales. An advisor can help you determine when to sell investments that have dropped in value to realize capital losses and offset taxable investment gains. Once losses are realized, your advisor can help you use the proceeds from the sale to reinvest in similar securities with upside potential. 

• Choosing tax-efficient investment vehicles. A strategic tax plan will consider the impact of contributions to tax-deferred savings accounts like Tax-Free Savings Accounts (TFSAs), Registered Retirement Savings Plans (RRSPs) and Registered Education Savings Plans (RESPs). Contributions to RRSPs provide an immediate benefit by allowing you to reduce your taxable income. Contributions to other tax-efficient investments, like RESPs, aren’t tax deductible, but the investments grow tax-free. A financial advisor can help you plan contributions to tax-deferred accounts to minimize what you owe in taxes.

• Multi-Year tax planning. The most effective tax plans go beyond annual strategies and look ahead to your long-term financial goals. An advisor can help you put together a multi-year plan to reduce your tax burden in the long run. 

Tax planning involves a lot of moving parts from annual contributions to retirement savings accounts to claiming charitable gifts to staying abreast of local tax laws. Working with a financial advisor on year-round tax planning can help ensure you’re maximizing tax deductions, taking advantage of tax credits, and using tax-efficient investment vehicles effectively. An advisor can help ensure you don’t miss any opportunities to reduce your bill and will keep up with regulatory changes, making any necessary adjustments to your plan.

Tax planning is most effective when it's personalized. If you have questions or would like to discuss your own strategy, I'd be glad to connect for a complimentary call/meeting.

Vincenzo Marozzi 

780-935-8637

vincenzo.marozzi@rbc.com

Sources

(2024, January 23). Capital Gains – 2023. Government of Canada. Retrieved February 16, 2024, from https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html

Canada Revenue Agency (2024, January 17). Tax-Free Savings Account (TFSA), Guide for Individuals. Government of Canada. Retrieved February 16, 2024, from https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4466/tax-free-savings-account-tfsa-guide-individuals.html

(2024, January 15). Registered Retirement Savings Plan (RRSP). Government of Canada. Retrieved February 16, 2024, from https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/registered-retirement-savings-plan-rrsp.html

(2023, November 9). Registered Education Savings Plan. Government of Canada. Retrieved February 16, 2024, from https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/registered-education-savings-plans-resps.html